UK business distress hits two-decade high ahead of budget, insolvency firm says

BTG records 738,144 companies in 'significant' financial distress, with hospitality and retailers among the hardest hit

By LineZotpaper AI staff

Published27 October 2026

Updated27 October 2026

Read Time2 min

Sources2 outlets

The number of UK businesses in 'significant' financial distress has reached its highest level in more than two decades, according to insolvency practitioner BTG, increasing pressure on Chancellor John Healey to back the private sector in Wednesday's budget.

BTG said 738,144 businesses were in 'significant' financial distress in the third quarter of this year, up 1.6% on the same period last year and the highest level since its closely watched 'red flag' report began in 2004. The firm, one of the UK's biggest insolvency practitioners, changed its name from Begbies Traynor in February.

Support services, construction and real estate were among the most vulnerable sectors, with 118,695, 108,340 and 99,908 businesses in significant distress respectively. The hospitality industry was hardest hit this year, with a 5% rise in bars and restaurants in distress to 18,866, while struggling food and drug retailers rose by more than 7% to 19,269.

BTG chief executive Mark Fry said businesses were 'battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs.' He added that the pressures were affecting not only small businesses' ability to operate but also larger businesses' ability to compete globally.

A freedom of information request by BTG found British businesses still owed £27.3bn in VAT, corporation tax and PAYE arrears to HMRC at the end of August. About £24bn has been recovered since arrears peaked at £51.3bn during the Covid pandemic, compared with a pre-pandemic total of £11.4bn.

'With £27.3bn owed to HMRC, high levels of recovery activity and record financial distress across the economy, many companies are approaching this budget from a position of financial weakness rather than strength,' Fry said.

The chancellor prepares to deliver his first budget on Wednesday against a backdrop of Middle East conflict disrupting the global economy, pressuring public finances and reigniting the cost of living crisis. He has vowed to give households and businesses more 'breathing space.' Last week Prime Minister Andy Burnham promised to 'slash red tape' for businesses, including clearer compliance guidance, simplified corporate reporting and extended import tariff suspensions on products favoured by businesses.

RSS

The Daily Edition

The front page in your inbox each weekday morning: the lead, the picks, and why each one earned its place.

Businesses in significant financial distress by sector, Q3 2024

businesses

Source: BTG

Analysis

Why This Matters

Record levels of financial distress affect jobs, supply chains and high streets across the UK, and set the context for the chancellor's first budget.
The £27.3bn owed to HMRC shows the scale of deferred tax liabilities still weighing on companies, with recovery activity already high.
Wednesday's budget will show whether the government's promised 'breathing space' and deregulation plans translate into concrete support for struggling firms.

Background

BTG's 'red flag' report has tracked signs of financial distress among UK companies since 2004, making this quarter's reading the worst in the survey's history. The findings come as the government prepares its first budget under the current prime minister, with businesses facing rising employment costs, higher energy prices and elevated borrowing costs. The pandemic-era peak in tax arrears has been partly recovered, but outstanding liabilities remain well above pre-pandemic levels.

Key Perspectives

Mark Fry (BTG chief executive): Says businesses are battling rising employment costs, inflation, higher energy prices and elevated borrowing costs, and that these pressures hurt both small firms' operations and larger firms' global competitiveness. He argues many companies enter the budget from a position of financial weakness, and that structural hurdles, red tape, employment legislation, the tax burden, interest and energy costs need tackling. John Healey (chancellor): Has vowed to use Wednesday's budget to provide households and businesses with more 'breathing space.' Andy Burnham (prime minister): Promised last week to 'slash red tape' for businesses, with plans to make compliance guidance clearer, simplify corporate reporting requirements and extend import tariff suspensions.

What to Watch

Whether Wednesday's budget delivers measures that address the tax burden, employment costs and energy prices cited by BTG.
Whether the promised deregulation plans, including clearer compliance guidance and simpler reporting, are detailed with timelines.
Whether HMRC's recovery activity intensifies, which could push more already-strained businesses into insolvency.

Sources

Number of UK businesses in financial distress ‘at two-decade high’ · The Guardian
Number of UK businesses in financial distress ‘at two-decade high’ · The Guardian

Checked

12 claims in this story checked against 1 source: 10 supported.

Show each claim

SupportedUK business distress has reached a two-decade high ahead of the budget, according to an insolvency firm.Business | The Guardian: “The number of UK businesses in financial distress has hit its highest level in more than two decades, as pressure grows on the chancellor to provide more support to the private sector in Wednesday’s budget .”
Partly supportedThe summary says BTG recorded 738,144 companies in significant financial distress.Business | The Guardian: “There were 738,144 businesses in “significant” financial distress in the third quarter of this year, up 1.6% compared with the same period last year, according to BTG.”
Partly supportedHospitality and retailers were among the hardest hit.Business | The Guardian: “The hospitality industry was hardest hit this year, with a 5% rise in the number of bars and restaurants in distress to 18,866. Struggling food and drug retailers rose by more than 7% to 19,269”
SupportedThe distress figure was up 1.6% on the same period last year and was the highest since the report began in 2004.Business | The Guardian: “There were 738,144 businesses in “significant” financial distress in the third quarter of this year, up 1.6% compared with the same period last year, according to BTG. That is the highest level since the administrator’s closely watched “red flag” report began in 2004.”
SupportedThe rising distress is increasing pressure on Chancellor John Healey to support the private sector in Wednesday’s budget.Business | The Guardian: “The number of UK businesses in financial distress has hit its highest level in more than two decades, as pressure grows on the chancellor to provide more support to the private sector in Wednesday’s budget .”
SupportedSupport services, construction and real estate had 118,695, 108,340 and 99,908 businesses in significant distress, respectively.Business | The Guardian: “The UK’s support services, construction and real estate sectors were among the most vulnerable, with the highest numbers of businesses in significant distress – at 118,695, 108,340 and 99,908 respectively.”
SupportedMark Fry said businesses were “battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs.”Business | The Guardian: “Mark Fry, the chief executive of BTG, said British businesses were “battling a combination of rising employment costs, inflationary pressures, higher energy prices and elevated borrowing costs.”
SupportedFry said those pressures affected small businesses’ ability to operate and larger businesses’ ability to compete globally.Business | The Guardian: ““Crucially, these pressures are not only affecting small businesses’ ability to operate, but also larger businesses’ ability to compete on a global stage,” he said.”
SupportedA BTG freedom of information request found businesses owed HMRC £27.3bn in VAT, corporation tax and PAYE arrears at the end of August; about £24bn had been recovered since the pandemic peak of £51.3bn, compared with a pre-pandemic total of £11.4bn.Business | The Guardian: “A freedom of information request by BTG also found that British businesses still owed £27.3bn in arrears to HMRC in VAT, corporation tax and PAYE at the end of August. About £24bn has been recovered since arrears reached a peak of £51.3bn during the Covid pandemic, compared with a pre-pandemic total of £11.4bn.”
SupportedFry said companies were approaching the budget from financial weakness rather than strength, citing the £27.3bn owed and recovery activity.Business | The Guardian: ““With £27.3bn owed to HMRC, high levels of recovery activity and record financial distress across the economy, many companies are approaching this budget from a position of financial weakness rather than strength,” Fry said.”
SupportedMiddle East conflict was disrupting the global economy, pressuring public finances and reigniting the cost-of-living crisis as Healey prepared his first budget.Business | The Guardian: “The growing strain on UK companies comes as the chancellor, John Healey , prepares to give his first budget on Wednesday, against an increasingly volatile backdrop as the war in the Middle East disrupts the global economy, putting pressure on public finances and reigniting the cost of living crisis.”
SupportedLast week Prime Minister Andy Burnham promised to “slash red tape” and outlined plans on compliance guidance, corporate reporting and import tariff suspensions.Business | The Guardian: “Last week the prime minister, Andy Burnham, promised that his government would “ slash red tape ” for businesses, with plans to make compliance guidance clearer, simplify the UK’s corporate reporting requirements and extend import tariff suspensions on products favoured by businesses.”